Equilibrium Vertical Foreclosure in the Repeated Game

Hans-Theo Normann ()

Industrial Organization from EconWPA

Abstract: This paper analyzes if vertical foreclosure can emerge as an equilibrium outcome of an infinitely repeated game. Foreclosure is profitable due to a 'raising rival's costs' effect but it is not a Nash equilibrium of the static game. The results are that foreclosure is in fact a subgame perfect Nash equilibrium of the repeated game, and it may facilitate collusion compared to the nonintegrated industry. The possibility of a counter merger of the nonintegrated firms negatively affects the likelihood and profitability of collusive foreclosure.

Keywords: foreclosure; vertical integration; collusion (search for similar items in EconPapers)
JEL-codes: D43 L13 L23 L40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-mic
Date: 2004-08-30
Note: Type of Document - pdf; pages: 18. Preliminary draft
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpio:0408008

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